Friday, 13 July 2012

I
recently received an excited call from a friend in Athens. “You know, for the
first time in I don’t know how long there was no story about Greece, not a
word, in The Financial Times!” After
a trip to Greece it does indeed seem as if a relative, tenuous calm has settled
over the country after a winter and spring fraught with demonstrations, threats
of imminent bankruptcy, and elections. Maybe it’s the summer season when the
beaches are more attractive than the barricades. Maybe it’s just sheer crisis
exhaustion. In any case, the new government may well have won a grace period to
get started on the mammoth task of national reconstruction.

The Financial Times - Nothing On Greece Today

In
fact, if one looks beneath the static and noise about Greece, the situation
shows clear signs of improvement. A recent Goldman
Sachs report says “there is evidence that significant structural progress
has been made in terms of ‘rebalancing’ Greece.” The report notes that exports
continue to grow at double digit rates and labour costs have declined almost 30% relative to core
Europe. Unit labour costs have dropped about 16% since the program began in the
second quarter of 2010 – close to the program’s requirements. In short, the
much discussed internal devaluation
is happening. On top of these developments the trade deficit is near zero. The
report also notes that despite ‘headwinds’ caused by the prolonged election
period and ongoing steep decline in output, ‘budget execution data for the
period January – May 2012 suggests that the program is broadly on track.’ The
primary budget deficit (not including interest payments) was almost €2 billion less than expected.

None
of these developments has yet been reflected in the bond market or, more
importantly, in news reports about Greece. The media commentary seems focused
on disaster scenarios and the question of when
not if Greece leaves the Euro.
Potential foreign investors don’t even want to hear the word Greece. One
allegedly experienced private equity investor in New York reacted with shock
and horror at the thought of capitalizing on low asset values in Greece. “Yeah,
prices are low and they’re going to stay low. This is Greece we’re talking
about, man. Speak to me when they leave the Euro.” This was from someone who
has seldom been further east than Coney Island. While other potential investors
are bit more worldly the general attitude is the same. My comments about Greek
investments potentially exceeding the gains from Russia since 1998, Turkey
since 2002, or the S&P 500 since 2009 fall on deaf ears.

It
would help a great deal if Greece could complete even one major privatization –
sale of state assets. These are difficult transactions in all countries, but
even more so in Greece where there seems to be an in-built fear and deep
distrust of anything to do with the private sector – Greek or foreign. There is
an abiding belief that only state ownership guarantees equality of service (all
bad, but at least bad for everyone) and protection of the interests of the
‘people’. The miserable reality of 80 years of state ownership in the former
Soviet Union never seems to dissuade anyone from this viewpoint.

The Greek gaming company OPAP is supposed to privatized

An
otherwise extremely intelligent friend reacted with total indignation at the
thought of selling even the money losing state companies. What was his real
fear? He was convinced the private buyers would fire all the workers and shut
the company down. I pointed out that it wouldn’t make much sense to pay
billions of Euros for a company only to shut it down. His response? “Huh, just
you wait and see.”

The argument that private owners could possibly
run the companies more efficiently, avoid political interference, and make
long-overdue investments didn’t impress him either. Finally I asked why he
would continue to entrust the country’s economy to the same state bureaucracy
that created the mess in the first place. Ah, he says, the Swedish state is very
involved in the economy, and that works fine. I tried gently to remind him that
Sweden, where people generally pay taxes and abide by regulations, is not
Greece. When I pointed out that Turkey is moving aggressively this year toprivatize large state enterprises like the oil pipeline company, the state tea
producer, and the post office he started to hyperventilate and I decided it was
time to agree to disagree.

Turkish state tea operations set to be privatized

This
deeply ingrained mindset will not change quickly. But, despite this prevailing
attitude, changes are in fact being made. But, as I overheard one tourist on
the Acropolis looking at the construction cranes around the Parthenon, much
remains to be done. “Hon, no wonder these people are in trouble. They been
working on this for 2,500 years and they’re still not finished.”

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About Me

I worked as a fund manager and investment banker in Turkey and the Middle East for 25 years. Over the years I have travelled extensively throughout the region and have met many of the leading government officials, business and cultural leaders. I am married to a Greek and now divide my time between London, Turkey, and an island in the Aegean.